Jamie Damon, CEO of JPMorgan Chase speaks with the Economic Club of New York in New York, January 16, 2019.
Carlo Allegri | Reuters
Jamie Damon, CEO and chairman of the largest U.S. bank in terms of assets, pointed out in his annual shareholder letter the potential unprecedented combination of risks facing the country.
Three powers could shape the world in the next few decades: a U.S. economy recovering from the Covid epidemic; High inflation will usher in an era of rising rates, and Russia’s invasion of Ukraine and the resulting humanitarian crisis are now underway, according to Damon.
“Each of the three factors mentioned above is unique in its own right: dramatic stimulus-recovery from the Kovid-19 epidemic, the need for rapid rate hikes and the necessary changes in QE, and the war in Ukraine and sanctions on Russia.”
“They present a completely different situation from what we have experienced in the past – and their intercourse can dramatically increase the risk ahead,” he wrote. “While it is possible, and hopefully, that all of these events will be resolved peacefully, we should be prepared for the possible negative consequences.”
Daemon’s letter, widely read in business circles because the JPMorgan CEO had the status of the most prominent spokesman in his industry, took a more subdued tone from his message last year. Although he wrote extensively about the challenges facing the country, including economic inequality and political inefficiency, the letter conveyed his belief that the United States was in the midst of a boom that could go “easily” in 2023.
Now, however, the outbreak of the biggest European conflict since World War II has changed things, rolling markets, reorganizing alliances and restructuring the pattern of world trade, he writes. According to Damon, this introduces both risks and opportunities for the United States and other democracies.
“The war in Ukraine and the sanctions on Russia will, at a minimum, slow down the world economy – and it could easily get worse,” Dimon wrote. Due to the uncertainty about how the conflict will end and its impact on the supply chain, especially for those involved in power supply.
Dimon added that for JPMorgan, management is not worried about direct exposure to Russia, although the bank could “lose about $ 1 billion over time.”
Here are excerpts from Dimon’s letter.
On the economic impact of war
“We expect the outcome of the war and the consequent sanctions to reduce Russia’s GDP by 12.5% in the medium term (worse than a 10% drop since the 1998 default). Our economists now believe that the eurozone is highly dependent on Russia for oil.” Gas will see about 2% GDP growth in 2022, instead of the 4.5% growth we expected just six weeks ago. It is based on a fairly stable view of the war in Ukraine and the current sanctions. “
On Russian sanctions
“Many more sanctions could be added – which could dramatically and unexpectedly increase their impact. With the uncertainty of war and the uncertainty surrounding the global supply chain, it creates a potentially explosive situation. In that case, but for now, it’s easy to disrupt that supply. “
A ‘wake up call’ for democracy
“The United States must be prepared for the possibility of an escalating war in Ukraine with unforeseen consequences. We must see this as a wake-up call. We must pursue short-term and long-term strategies aimed at not just a solution. To maintain unity. We must make it a lasting, lasting stand for democratic ideals and against all forms of evil. “
Influence beyond Russia
“Another dramatic and significant consequence of the Russian aggression is: it is bringing together democracies, the Western world – the whole of Europe and the North Atlantic Treaty Organization (NATO) countries – Australia, Japan and Korea. […] The consequences of these two issues will transcend Russia and possibly influence geopolitics for decades to come, potentially leading to both the restructuring of the alliance and the restructuring of world trade. How the West adjusts itself, and whether the West can maintain its unity, will probably determine the future global order and shape America’s (and its allies’) important relationship with China. “
Supply chain rearrangement required
“It is also clear that trade and supply chains, where they affect national security issues, need to be restructured. You cannot rely on countries with different strategic interests for important products and services. Such restructuring does not require a catastrophe. And in order to be effective, it must be reasonable and orderly. It is in everyone’s interest. “
“For any product or material essential to national security (think rare earth, 5G and semiconductors), the US supply chain must be domestic or open only to completely friendly allies. And will be used against us, especially when we Because of the same national security, activities that help create national security risks (including investment activities) – such as sharing critical technology with potential competitors – should be restricted. “
It will benefit Brazil, Canada and Mexico
“This restructuring is likely to happen over time and does not need to be disrupted drastically. There will be winners and losers – some of the main beneficiaries will be Brazil, Canada, Mexico and friendly Southeast Asian countries. The system needs to be built. As mentioned above, my choice is to rejoin the TPP – the best possible geopolitical and trade arrangement with the Allies. “
“The Federal Reserve and the government did the right thing by taking bold dramatic steps in the wake of the tragedy unleashed by the epidemic. In the short term, it worked. But even in the short term, the drugs (financial costs and Kiwi) were probably too high and too long to last.”
‘Very volatile market’
“I’m not jealous of what the Fed has to do next: the stronger the recovery, the higher the rate will follow (I believe it could be significantly higher than market expectations) and the stronger the quantitative tightening (QT) the Fed understands, our It may increase year after year, and inflation will eventually start to decline. In any case, this process will cause a lot of panic and cause very volatile markets. The Fed should not worry about volatile markets unless they affect the real economy. The economy overcomes market volatility. “
“One thing the Fed should do, and it seems, is to exempt themselves – to give themselves ultimate flexibility – from the pattern of raising rates by only 25 basis points and to do so on a regular basis. And when they can announce how they want to reduce the Fed balance sheet, they The economy and the market should be free to change this plan at a moment’s notice to deal with real events. A Fed that reacts strongly to data and events in real time will ultimately build more confidence. There is a hard work to be done so let’s all wish them well. “
On JPMorgan’s rising costs
“This year, we’ve announced that investment costs will increase from $ 11.5 billion to $ 15 billion. I’m going to try to describe the ক্র 3.5 billion ‘growing investment’, although I can’t review them all (and for competitive reasons I won’t) but we hope A few examples will give you relief in our decision making process.
Some investments have a fairly predictable time for cash flow to be positive and have a good and predictable return on investment (ROI) but you measure it. These investments include branches and bankers, all over the world, in our business. They also include specific marketing expenses, which have a known and measurable return. This division will add $ 1 billion to our costs in 2022.
“In the last 18 months, we’ve spent about $ 5 billion on acquisitions, which will increase the ‘growing investment’ expenditure by approximately $ 700 million in 2022. We expect that most of these acquisitions will generate positive returns and strong earnings in a few years, completely justified. Costs. In some cases, these acquisitions make money – also, we believe, help prevent erosion in other parts of our business. “
“Our international consumer expansion is an investment of a different nature. We believe that the digital world allows us to build a consumer bank outside the United States that can become very competitive over time – an option that does not exist in reality. Let’s start with some of the benefits that we believe will grow stronger over time …. We have the talent and know-how to deliver these through state-of-the-art technology that allows us to leverage this full range of capabilities from all of our businesses. We can apply what we have learned in our leading US franchise and vice versa. We may be wrong, but I like our hand. “
On pushing JPMorgan’s diversity
“Despite the epidemic and the challenge of retaining talent, we continue to increase our representation among women and people of color.… In 2021, more women have been promoted to managing director than ever before; similarly, a record number of women have been promoted to executive. By the end of the year, women represented 49% of the firm’s total workforce, based on self-identifying employees. Overall, Hispanic representation was 20%, Asian representation increased 17%, and black representation increased 14%. “